VENKITESWARAN Vs. VENKITAKRISHNAN

JUDGEMENT

(1.) The two Civil Revision Petitions arise out of two insolvency petitions where respondents 1 to 7 in those petitions (who are the same persons in both the cases) were sought to be adjudicated as insolvents and the entire assets of the joint family of the respondents including the business run in the name and style of "M. N. Venkitasubramania Iyer and Sons" and " Narasimha Financing Company" be administered under the law of insolvency. The 1st respondent in C. R. P. No. 2788 of 1978 is the petitioner in I.P. No. 3 of 1976 while the 1st and the 2nd respondents in C.R.P. No. 2886 of 1978 are the petitioners in I.P. No. 4 of 1976, both before the Sub Court of Palghat. In both the petitions it is alleged that M. N. Venkitasubramania Iyer and Sons is a joint family concern of respondents 1 to 7 in the insolvency petitions carrying on the business as Bankers while Narasimha Financing Company, a Partnership registered under the Indian Partnership Act; also is a concern of the joint family. Large amounts were borrowed by these concerns for the purpose of their joint family business. An amount of Rs. 30,000 is alleged to be due to the petitioning creditor in I.P. No. 3 of 1976 by way of deposit loan as evidenced by Ext. A6, dated 7th June 1976, a fixed deposit receipt. An amount of Rs. 10,000 is due to the petitioning creditors in I. P. No. 4 of 1976 as per two receipts Exts. A1 of 25th November 1975 and A2 of 20th January 1976, each for Rs. 5,000. Mr. Venkitasubramania Iyer died in September 1975, while his eldest son the succeeding manager died on 13th May 1976. The successor manager Mr. Subramanian stopped the business immediately. He called for a meeting of the creditors of these concerns as per Ext. A4 notice of 26th May 1976. On 16th June 1976 as per Ext. A5 a power of attorney was executed by the members of the joint family including the heirs of Mr. Narasimhan in favour of nine creditors to collect the outstandings and pay off the debts. The acts of insolvency alleged in I. P. No. 3 of 1976 are: (1) Suspension of payment; (2) Scheme of composition; (3) Closure of business; and (4) Transfer of bus service to favoured creditors. The acts of insolvency alleged in the other petition were the execution of power of attorney Ext. A5 and fraudulent preference, collusive attachment, etc. The insolvency Court held that the suspension of payment consequent on the execution of power of attorney Ext. A5 is an act of insolvency proved in the case. The other acts of insolvency alleged are not proved. The court held that the 1st respondent in the insolvency petitions who is the Manager of the joint family is personally liable though respondents 2 to 7 are not personally liable as they have not participated in the joint family business. It was held that the entire joint family assets shall vest in the court and the Official Receiver was directed to administer the estate.

(2.) The matter was taken up in appeal by the present revision petitioners, C.M.A. No. 57 of 1977 against I.P. No. 3 of 1976 and C.M.A. No. 56 of 1977 against I. P. No. 4 of 1976. Apart from the Manager of the joint family, Mr. Subramanian, no other members of the joint family were impleaded in the appeal nor was the Official Receiver a party to the appeal. The appellate court confirmed the finding regarding act of insolvency. The court further held that the personal liability of the other members of the family cannot be challenged by any other party nor the adverse order passed against them, namely, vesting the joint family properties in the Official Receiver can be questioned by any other person as they themselves have nut challenged the same. Before the appellate court it had been contended that because of Act 30 of 1976 by which there has been a disruption in the joint family status notwithstanding the provisions in S.28 of the Insolvency Act that the order of adjudication will relate back to the filing of the petition that will be of no avail to the Official Receiver to proceed against the interest of the other joint family members. This was rejected by the court stating that under Act 30 of 1976 there is a provision that the joint family members will be entitled to claim shares only subject to their liability for joint family debts. In this view, the appeals were dismissed confirming the order passed by the lower court. This has given rise to these civil revision petitions. C. R.P. No. 2788 of 1978 is against I.P. No. 3 of 1976 and C.R.P. No. 2886 of 1978 is against I.P. No. 4 of 1976.

(3.) It is strongly contended before me by the learned counsel for the petitioners that as only the 1st respondent has been adjudged to be insolvent and the prayer for adjudging the other members of the family having been disallowed on the ground that they had not participated in the running of the business of the joint family nor had they acquiesced in the running of the business and therefore they are not personally liable for the debts, the insolvency court went wrong in vesting the entire joint family asset in the court. The findings of the courts below, according to the counsel, which make the 1st respondent alone liable coupled with the adjudication of the 1st respondent as insolvent do not justify the vesting order directing the entire joint family assets to be vested in the court. This is alleged to be opposed to S.29, 28 and 28A of the Provincial Insolvency Act. It is also opposed to numerous judicial pronouncements on the matter. The sum and substance of the argument is that a joint family as such cannot be adjudged insolvent. In the light of that it will be wrong to vest the joint family properties in the court or in the Official Receiver. It is urged that on the adjudication of the manager of the joint family as insolvent, the rights of the other members of the joint family or the entire joint family assets could not vest in the court or the Official Receiver. It is also urged that an act of insolvency of one partner in a firm cannot be considered to be an act of insolvency of another partner. For that reliance is placed on the decision of the Supreme Court in Firm Mukund Lal v. Purushottam Singh AIR 1968 SC 1182 . It is pointed out that the Supreme Court in that case held that a firm can be adjudged insolvent because the rules framed by the concerned High Court provide for that. But in Kerala, the rules provide otherwise. The order of adjudication has to be made against partners individually under the Kerala rules. In regard to the contention raised by the respondents herein that the appeals before the court below were incompetent for the non impleadment of the Official Receiver, which objection I will deal with in detail the petitioners would contend that the objection was never raised in the lower appellate court. In this court they raised it in the counter of 11th December 1978 only although the revisions were filed as early as 25th September 1978. The petitioners filed C.M.P. Nos. 18451 and 1840 of 1978 in the two civil revision petitions respectively for impleading the Official Receiver as supplemental respondent. Therein notice was ordered to the Official Receiver on 22nd December 1978. It was also pointed out that on 10th September 1979 this Court directed the Official Receiver to appear in person or through counsel on 3rd October 1979. It is also pointed out that the Official Receiver appeared through Mr. G. M. Devan, Advocate. In regard to the objection raised by the respondents that the petitioners have no locus standi to challenge the order of the Insolvency Court directing the entire joint family assets to be vested in the court inasmuch as none of the adult members of the joint family has preferred an appeal against the order of the Trial Court, the petitioners would contend that they are creditors of the Narasimha Financing Company which was a partnership firm. O.S. No. 133 of 1976 of the Sub Court, Palghat was a suit filed by them against Narasimha Financing Company and the legal representatives of Narasimhan and also against Mr. V. Subramanian, the 1st respondent in the insolvency petitions. That suit was decreed on 7th February 1977 for a sum of Rs. 15,393.33. According to the petitioners, on the death of Venkitasubramania Iyer and Narasimhan, the partnership has been statutorily dissolved under S.42(c) of the Indian Partnership Act. Therefore the rights of these persons devolved on respondents 7, 6, 1, 3 to 5, 2 and one Hariharan (second son of the 1st respondent) in accordance with the provisions of the Hindu Succession Act, 1956. The petitioners therefor could have realised the decree amount from the legal representatives of deceased Venkitasubramania Iyer and Narasimhan. According to them, by the order of the Insolvency Court, the shares of the legal representatives also vest in the court and therefore they are highly prejudiced by the order of the court and hence they are entitled to challenge the vesting of these shares.